AMC Entertainment (AMC) - Get Report is probably the most debated and beloved stock in meme mania. But its loyal shareholders – so-called apes – have endured an uncomfortable period of sharp losses since the most recent short squeeze, in early June.
Wall Street Memes talks about some of the reasons why the Reddit crowd has remained bullish on AMC stock, despite unfavorable price action.
(Read more from Wall Street Memes: AMC Stock: A Test For Diamond Hands)
According to Ortex data, AMC shares have a short interest of 16% at last check. That is, nearly one-fifth of AMC shares are currently shorted in the market. The ratio has climbed to as much as 19% recently. Such high figures keep the stock a potential target for a short squeeze.
For reference, Tesla’s short interest breached 20% in May 2019 – before the ratio began to decline sharply towards the low teens and share price skyrocketed by 150% through January 2020.
The utilization rate is based on borrowed shares divided by the shares investors are willing to lend. The closer the utilization gets to 100%, the greater the risk for short sellers. If the short trade is overly crowded, bears can suffer in the case of a sudden buying spree.
AMC’s utilization rate of almost 93% (data from Ortex) indicates that there is substantial demand for short selling. AMC utilization numbers have increased by more than six percentage points since the beginning of July, which may help to explain the drop in AMC share prices – but may also suggest overcrowding.
(Read more from Wall Street Memes: AMC Stock: Hot Topics On The Planet Of The Apes)
AMC mania has legs
Unlike other stocks that have emerged since GameStop (GME) - Get Report started meme mania, AMC, GME itself and only a few other names have stood out for loyal and fervent following. FOMO and YOLO have been drivers of increased demand for a stock like AMC within the Reddit community.
AMC does not fit one-off meme cases like Newegg (NEGG) - Get Report, a stock that was speculated to have spiked (and tanked) recently as an ultra-short term bullish target. Apes are more likely to “diamond-hand” their positions in AMC, keeping the short squeeze potential alive for longer.
Having said the above, it is also important to point out that trading AMC comes with sizable risks. Diamond-hand apes and casual paper-hand traders are entitled to their bullishness (i.e. hope for the best). But they should also be prepared for the worst (i.e. volatility and large losses, whether temporary or not).
AMC's historical volatility has surpassed 180% in a 52-week period, almost ten times the market’s. Even a Big Tech name like Apple (AAPL) has experienced volatility of only 34%. Therefore, based on history, it is not unreasonable to expect AMC to go up 100% or much more, or to drop to nearly zero.
Case in point, AMC fell more than 70% in the months following the first short squeeze, in January 2021, recovering quickly in June, after the second short squeeze. The journey to the moon has clearly not been a straight shot up, and apes should not expect it to be so going forward.
Apes and other AMC shareholders: in your opinion, which of the below would be most important for a potential short squeeze in AMC to happen?
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)